Real Estate Business: Surviving The New Freelancer Law
Is your real estate business ready to survive the new freelancer law?
Freelance remote workers have become the go to hiring solution for just about everything today. Uber, Amazon and big funds use a lot of them. Smaller real estate businesses run almost exclusively on them, and for good reason. As much as 60% of the workforce or more in some areas work in this capacity. Billion dollar businesses have been built on this hiring approach. Many may not survive the new freelancer ban. How can your business make sure you are one of those that does?
The New Ban On Freelance Workers
California’s new AB 5 law went into effect on January 1st 2020. The law effectively bans Californian companies from using freelance workers and independent contractors. It can also apply to hiring any freelancers or remote workers in California, even if your business is located in another state. While this law may appear to be contained for now, New York is highly likely to follow California’s lead as it normally does.
California even kicked off 2020 by adding $21M to the state budget to investigate and pursue enforcement.
Data shows at least 57 million US workers currently working in this way, who are adding $1 trillion to the economy every year.
Why Ban Freelancers?
The main reason given for this sweeping new proclamation is to stop workers from being taken advantage of. Try telling that to the tens of millions about to become unemployed, or who have already been laid off in droves. Maybe they would have preferred to keep working.
It may sound more plausible that the state wants to generate more revenue in state income taxes and other related fees. Although these workers still pay heavy self-employment taxes, and have to pay for their own healthcare and create their own retirement plans.
Another explanation might be bigger corporations and law firms figuring out that they can’t compete with smaller companies who are operating leaner thanks to outsourcing. Their big offices, equipment, overhead, and benefits packages put them at a disadvantage. So, why not push a law that takes out the competition? The smaller real estate businesses. Why not create millions of dollars for lawyers in new lawsuits, especially when they just happen to be one of the few exempt roles?
The Impact Of Ending The Gig Economy
The freelance economy largely saved the US and globe in the wake of 2008. It would still be far worse without it.
We’re talking about making it far, far more expensive to start a business again. We’re talking about an incredible amount of risk in hiring in-house workers. A risk most small real estate businesses can’t afford to take.
We’re talking about massive unemployment. Tens of millions of people out of work. As many as 60% in some areas. All on top of current unemployment rates. That will make the Great Recession look like a summer vacation in comparison.
In turn, we’re talking about millions of people who won’t be able to pay their rent or mortgages next month. At least $1T taken out of the economy and consumer spending. While the pressure on public services mounts to take care of them, provide shelter and food and deal with mass homelessness. Some real estate markets will be smashed.
Surviving & Thriving In 2020 & Beyond
Fortunately, there do appear to be some easy workarounds for real estate businesses and entrepreneurs right now.
These include:
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Making sure you are paying any independent contractors 2x the minimum wage in California or more
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Avoid hiring any remote workers in California (and probably New York)
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Relocating your company out of any states who are debating similar laws
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Spreading the workload across more outsourced workers and keeping under the caps
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Asking your freelancers if they have their own company they can be paid through, instead of as individuals
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Hiring more consultants and advisers, and automating your business with technology instead of hiring expensive and risky in-house employees
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